Greece Avoids Disaster, For Now

[E]stablishment types should actually be dismayed by this outcome: if current policies fail completely, which seems almost a given, and Greece exits the euro anyway, which seems highly likely, the entire Greek center will end up discredited; better, in a way, to be able to blame the radicals.

In a later post, he sighs that "the worst thing about the Greek election is the possibility that it will encourage the Germans and the ECB to persist a bit longer with their fantasies about how things might work." Zachary Karabell wonders whether the Eurozone can survive:

Greece was not the final straw, or at least not today. All may go to hell quite soon, but given that the amen chorus is singing notes of doom, a contrarian would be advised to consider the risks that everything doesn’t fall apart, that world leaders continue to show a remarkable ability to muddle through at the last moment, and that while the tail risks are shudderingly fearsome, the stability of the system as a whole is far greater than most imagine. Now, markets will turn to Spain, Italy, debt—who knows—and affix the same anxieties that have been so indelibly attached to Greece.

It remains to be seen whether Europe will offer Greece a deal that allows the country to shore up its economy and get back on the path to recovery. Famed gloomy economist Nouriel Roubini is skeptical this will ever happen, predicting that “in 6-12 months [the New Democracy-led government] will fall as economy will fall into a depression. Then new elections will lead Syriza to win [and] a Grexit will occur.”

One reason the markets aren't reassured is that there's nothing reassuring about an ideologically divided and inherently unstable coalition presiding over deeply unpopular austerity measures. Another reason markets aren't reassured is that to the extent the "deeper issue" in Greece is endemic corruption and malgovernance driven by decades of New Democracy and Pasok running the state as a patronage mill for party supporters, forming a New Democracy / Pasok grand coalition is not a promising foundation for change. The insiders are circling the wagons and saying nice things to German officials in the hopes of keeping some money flowing in, but there's absolutely no real solution here.

In the coming days, euro zone leaders are set to release a number of plans to deal with some of the more systemic elements of the crisis. There's going to be a proposal for the European Central Bank to regulate and insure financial institutions across the euro zone. The French are pushing for a (much-too-small) stimulus. The Greek elections have bought them the time to release these proposals. But it's the proposals themselves, and not the elections in Greece, that will decide whether the euro zone is sustainable going forward.